If you offer people universal basic income, they work less but have more choice, study finds

A new study from the Open Research Lab found that while unconditional cash transfers such as universal basic income slightly reduced employment rates and work hours, they increased the financial stability and agency of recipients. People were 2 percent less likely to be employed and worked 1.3 fewer hours weekly but had higher incomes when including the cash transfers. The financial support allowed individuals to pursue education, caregiving, health improvements, and more meaningful work. Overall, cash transfers provided recipients with the flexibility to make employment decisions aligned with their personal goals and circumstances.

In the study, carried out in the US, 1,000 low-income individuals received $1,000 per month unconditionally over three years, while a control group of 2,000 participants received $50/month.

The study claims to shed light on the multifaceted impacts of unconditional cash transfers on employment and income. The study explored how providing regular, no-strings-attached cash payments to individuals influences their work habits, employment status, and overall economic wellbeing.

The findings reveal a nuanced picture, showing both the positive and negative effects of universal basic income on employment while highlighting the increased agency recipients have in making life choices aligned with their personal goals and circumstances.

Over the course of the study, both recipients of the cash transfers and control participants (who did not receive the transfers) experienced substantial increases in employment rates and work hours. However, the control group exhibited slightly higher gains. On average, recipients were 2 percentage points less likely to be employed than their counterparts in the control group. Additionally, recipients worked an average of 1.3 fewer hours per week compared to the control participants.

At the start of the study, unemployment was notably high due to the COVID-19 pandemic, with 58 percent of recipients and 59 percent of control participants employed. By the end of the program, these rates had risen to 72 percent for recipients and 74 percent for the control group. Despite the overall improvement in employment, the marginally lower employment rates and reduced work hours among recipients highlight the varied ways individuals used the cash transfers.

Differences in employment rates and work hours had direct implications for income

The differences in employment rates and work hours had direct implications for income. Recipients’ individual earned income from employment was approximately $1,500 lower on average than that of control participants, amounting to about 4 percent of the average income among the control group. Similarly, total household income for recipients, excluding the cash transfers, was between $2,500 and $4,100 lower than that of the control group, equivalent to roughly 5 percent of the control group’s average household income.

However, when the cash transfers were included, the financial picture shifted significantly. Recipients’ average individual income was approximately $10,000 higher, and their average household income was about $6,100 higher than those of the control participants. This substantial increase underscores the critical role the cash transfers played in supplementing income and providing financial stability.

One of the most significant findings of the study is the increased agency that cash transfers provided to recipients. The financial cushion allowed individuals to make employment decisions that better aligned with their personal circumstances, goals, and values. This was evident in several ways:

Job selection:  Recipients were more selective in their job searches, applying for fewer positions but placing greater emphasis on finding meaningful and interesting work. They were 5.5 percentage points more likely to prioritise interesting work as an essential condition for any job they would accept.

Education: Younger recipients, particularly those under 30, were more likely to use the cash transfers to pursue post-secondary education and work fewer hours while in school. This demographic was roughly 4 percentage points less likely to be employed and worked 1.8 fewer hours per week compared to their control group peers.

Care and family time: Some recipients chose to reduce their work hours or leave their jobs to focus on caregiving responsibilities. For instance, single parents who received the cash transfers were about 3.9 percentage points less likely to be employed and worked an average of 2.8 fewer hours per week than single parent control participants.

Wellbeing: The transfers enabled some recipients to prioritize their physical and mental health. Individuals with health challenges used the time away from work to seek necessary care and improve their well-being.

Entrepreneurship: The financial support allowed some recipients to take risks in their career paths, such as pursuing new job opportunities, starting their own businesses, or accepting lower-paying positions with better long-term prospects.

The study concludes that unconditional cash transfers such as universal basic income can significantly impact individuals’ employment decisions and financial stability. While some recipients chose to work fewer hours or delay employment to find better job matches, others used the financial support to pursue education, improve their health, or care for their families. This flexibility demonstrates the potential of cash transfers to enhance personal agency and quality of life, according to the authors.